The Green Sheet Online Edition

May 25, 2015 • Issue 15:05:02

Healthcare, the next big market for electronic payments

By Patti Murphy ProScribes Inc.

The healthcare industry has undergone dramatic changes in recent years, but when it comes to payments the industry is a model of antiquity: think wagon trains in an era of space travel. That's the assessment of experts.

The healthcare payment system is an artifact of an earlier age, focusing for decades on perfecting business-to-business functions, said Paul D'Alessandro, Principal and customer leader of the health industries practice at consultancy PricewaterhouseCoopers LLP (PwC). Consumers, and growing numbers of providers are demanding more convenient, seamless, reliable and transparent billing and payment options.

This is good news for payment acquirers and solutions providers as it portends potentially trillions of dollars in new consumer-based transactions, Mercator Advisory Group noted in a recent report, Health Care Sector Opportunities for Acquirers.

"Healthcare companies must consider shifting from a business-to-business to business-to-consumer billing and payment approach," D'Alessandro said. "Technology will play a significant role in creating ways to consolidate billing and payments, and mobile apps, online portals and other innovations should become more commonplace in the immediate future."

In early 2015, PwC surveyed consumers and found that dissatisfaction with the healthcare system was rampant. In fact, pharmacies were the only category of healthcare service providers with 90 percent consumer satisfaction rates; satisfaction rates for hospitals and insurers were in the 70 to 80 percent range. This is against a backdrop of greater out-of-pocket expenses as employers and insurers shift more healthcare costs to end users and more individuals select high-deductible health insurance plans.
Healthcare is a huge market, with annual revenues approaching $3 trillion a year, by most accounts. And the money isn't flowing just to doctors and hospitals. There are online healthcare providers (mostly consultation services), neighborhood emergency care centers, and even Wal-Mart Stores Inc. is making a play for this revenue pie. The big-box retailer began opening "care clinics" last year as part of a pilot program to offer primary care services (like health screenings and diabetes management) at rates it claims undercut those of physicians and clinics, according to several reports.
InstaMed, a Philadelphia-based ISO and healthcare clearing house, determined that patient payments to healthcare providers rose 72 percent between 2011 and 2013. The average patient payment to a healthcare provider made via InstaMed in 2011 was $110.86; in 2013 it was $133.15. America's Health Insurance Plans, a trade association for health insurance companies, expects out-of-pocket expenses for insured patients to reach $420 billion this year; in 2009 the total was $250 billion.

It's not like selling to merchants

Traditionally, most payments to healthcare providers (from both insurers and patients) have been made by check. Today, in fact, 85 percent are paper (check) payments, according to First Data Corp. First Data, which recently identified healthcare as a "strategic vertical," has several initiatives focused on moving more healthcare payments to electronic methods, stated First Data Vice President Joan McBride Christensen, who heads healthcare products for the company. She said several new offerings and more are on the drawing board.

Plus, the company has hired a team of healthcare experts to help out with sales. "Having subject matter experts who have contacts [in healthcare specialties] and can speak to providers in their own terms is critically important in this vertical," Christensen said. Indeed, Chris Seib, co-founder and Chief Technology Officer at InstaMed, noted, "It's not the same as walking into a pizza parlor and selling on price."

Healthcare providers, in fact, are nothing like pizza parlors. "Healthcare providers are not merchants," Christensen pointed out. "Providers will tell you: they are healers." And even within the business of healing there is little uniformity, as different types of healers have different needs. Christensen, for example, related how a dentist's office has been using one of First Data's Clover terminals for back-office tasks (like scheduling and patient sign-ins) as well as payment acceptance.

First Data is also working with several third parties on other solutions that can be loaded onto Clover terminals to better serve healthcare providers, Christensen noted. "This is not a one-size-fits-all market; it's very complex," she said.

Seib agreed. InstaMed, as its name implies, works exclusively with healthcare providers, and it is focused on moving more healthcare payments to cards and other electronic methods. In April 2015, for example, the company revealed it would begin supporting Apple Pay acceptance.

Part of the appeal of Apple Pay, Seib said, is the ability to support in-app payments – think insurance premiums and deductibles. He also noted the emergence of insurance company portals and smartphone apps that can help locate doctors and clinics. "Consumers can now pay their co-pays and outstanding balances using Apple Pay in a variety of ways: at the checkout desk, at a hospital or doctor's office, or within a mobile app that a hospital or doctor's office uses to communicate with patients.

Additionally, consumers enrolled in health insurance can pay their premiums and even their patient responsibility using Apple Pay with the convenience and ease of their insurance company's mobile app," InstaMed said in a statement to the press.

Seib conceded that only a small percentage of patients may use their iPhones or Apple Watches to pay doctors or insurance premiums in 2015. But he's certain transactions will increase with growth in mobile payment adoption. "It's a bet on the future more than anything else," he said.

And it's not a long shot. Online and mobile access are becoming increasingly important as consumers demand more convenience and transparency in healthcare payments, along with tools to help them manage health issues. Rustin Fichtner, Senior Vice President and General Manager of Healthcare Services at Elavon Inc., the acquiring unit of U.S. Bancorp, agreed. "People want more flexibility and payment options, including payment plans," he said, adding it is critical for acquirers to address these needs.

According to Trends in Healthcare Payments Fourth Annual Report: 2013, which culls data from InstaMed's network and consumer research, the total of patient payments under post-procedure payment plans alone grew nearly 300 percent between 2011 and 2013. That same report noted that when given the option of various methods of paying healthcare bills, 79 percent of consumers indicated they would pay their bills online through provider or health plan websites.

"Unlike a credit card bill which is provided regularly in a choice of convenient formats [such as mail, online and mobile] medical expenses are communicated typically through mailed paper forms, often from multiple payers and providers," said Sarah Grotta, Director of Debit Advisory Services at Mercator. "The ability for consumers to be able to clearly understand their medical expenses through an online portal or mobile app will help with collections."

This is critically important as healthcare providers have huge write-offs, experts noted.

Fichtner reported that five years ago, most payments to healthcare providers came months after care was provided, and everything was paper based. Now that's changing. Also, more consumers today are selecting high-deductible health plans as employers cut back on benefits, and more providers are requiring upfront payments from consumers.

Bringing consumers directly into the payment mix has had a profound impact. "Consumers are demanding more transparency," Fichtner said. "They want to know upfront how much [a visit or procedure] is going to cost them."

Christensen added that consumer-directed healthcare "is on the rise." Patients want pricing transparency and tools that can help them make informed choices about their healthcare. One response has been cost estimator tools. First Data developed a set of cost-of-care tools that healthcare providers and insurers can make available to patients. A healthcare provider, for example, can use the tools to provide patients with realistic estimates of the cost of procedures and for large-ticket items. Consumers can use the same tools to compare provider prices or negotiate payment arrangements before undergoing procedures.

For their part, providers want better certainty of payment. In 2013, 56 percent of healthcare providers surveyed for InstaMed said their primary revenue cycle concern was related to patient collections; 76 percent reported that it took more than a month to collect payments from patients.

"Some providers report that as many as 50 percent of patient co-payments are write-offs," Christensen said. "Providers need tools that help them to do better jobs in the back office as well as the front office."

It's not that healthcare providers are overrun with deadbeats. "Approximately 20 percent of consumers have unpaid healthcare bills as a result of confusion in the payments process," Seib said. "This will only grow as more and more consumers continue to enroll in high-deductible health plans."

(The Consumer Financial Protection Bureau is already on the case. The federal consumer watchdog agency recently took to task credit bureaus and their clients for putting too much weight on unpaid medical bills when determining consumers' creditworthiness. The CFPB cited data from the Federal Reserve that indicates over half of all delinquencies on consumers' credit reports are associated with medical bills. It also said it has received numerous complaints from consumers about medical debts in collection status that they had no knowledge of.)

PwC's survey data shows patient dissatisfaction with billing and payment procedures is especially high with millennials. "Millennials are more likely to challenge their bills," the report stated. It also revealed that affluent consumers are most unhappy with insurers' billing and payment experiences.

Recent reports about massive breaches of healthcare data bases are apt to foster even more unhappiness. Anthem Inc., one of the largest health insurers in the country, revealed a security breach in February 2015 that affected 80 million customers. It's not alone. The Privacy Rights Clearinghouse has reported on scores of healthcare-related data breaches in recent years.
As a consequence, medical ID fraud is rising, doubling between 2010 and 2014, according to the Medical Identity Fraud Alliance. More than 2 million Americans were victims of medical ID fraud last year, the MIFA said. And it's not just insurers or providers who bear the costs; the MIFA estimated the cost to victims exceeds $12 billion a year.

Roll of payments is small but important

Making payments is just one small part of the typical healthcare transaction. But more than any other vertical market in the acquiring space, integration is critical to payments acceptance. It is also a complex marketplace. Take practice management systems: over 3,000 systems are in the market today; many are specialized or customized. Then there are the multitude of claims processing, billing and collections systems, patient privacy, data security protections, and healthcare regulations to consider.
"There's not a single silver bullet in healthcare; you need a set of solutions," Seib said. That's why InstaMed partners with companies to support its products and services.

Grotta agreed that partnerships are important. "[U]nderstanding the payer networks, provider pain points, an ever-changing regulatory environment and a fragmented group of stakeholders requires an experienced guide with deep industry knowledge," she said. "The actual payment capability, although critical, takes a back seat to the tasks of claims processing, adjudication tracking and collections."

Then there is the Health Insurance Portability and Accountability Act (HIPAA), which incorporates regulations and standards regarding electronic healthcare transactions. "We [in banking and acquiring] have so many rules, especially around the security of financial data," Fichtner said. "We have more rules and regulations than most industries. Frankly, we don't want the incremental burden of HIPAA."

Grotta also pointed out that consolidation in the healthcare sector "has made the choice of collaborators difficult," and ongoing legal battles over the Affordable Care Act render it difficult to pinpoint where opportunities lie. "For ISOs and acquirers, software integrations and marketing partnerships may prove to be a good way to stay in the mix, [understand market shifts] and be in a position to forge more comprehensive solutions when the uncertainties are cleared away," Grotta said.

Fichtner is optimistic. Acquirers and their partners have, and are developing products specifically geared toward ISOs and the feet on the street, he said. "This is a rapidly growing market. There are some great opportunities for ISOs."

SIDE NOTE:The new health economy

The healthcare industry in the United States is a $2.9 trillion business sector that needs to transform the way it does business, or risk going bust. That's the assessment of the consultancy PwC in a newly released report, Money matters: Billing and payment for a New Health Economy.

According to the consultancy, the industry must first and foremost accelerate the migration to digital billing and payments. "The industry is burdened with systems that do not work together and bills that are difficult for the average consumer to decipher," the report noted.

Better customer service and simplicity are crucial. "Many consumers do not understand their benefits and are confused by their medical bills," the paper stated. "Online payment sites, mobile apps and aggregated billing are all steps toward a simplified consumer experience. Offering choices for payment, making payment easy, and helping consumers plan for costs can reduce bad debt and days in accounts receivable.

"In the short term, healthcare organizations should begin building more convenience, transparency, affordability, reliability and seamlessness into their revenue cycle and payment systems. In the longer term, healthcare payment must fall in step with other industries. The system needs more than patches, bolt-ons and retrofits: It needs structural change."

The report also stated that offering "choices for payment, making payment easy and helping consumers plan for costs can reduce bad debt and days in accounts receivable."
Following are insightful data points the company included in its assessment:

The average U.S. business sends about 43 percent of all its payments electronically (card, ACH, etc.), yet just 15 percent of payments issued by commercial health insurers are electronic.

Between 76 percent and 82 percent of U.S. adults (depending upon plan type) typically incur less than $1,000 in out-of-pocket healthcare expenses annually.

Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com.

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